We came across a bearish thesis on Blackbaud, Inc. (BLKB) on Substack by Dominick D’Angelo. In this article, we will summarize the bears’ thesis on BLKB. Blackbaud, Inc. (BLKB)’s share was trading at $65.01 as of March 5th. BLKB’s trailing and forward P/E were 108.47 and 15.50 respectively according to Yahoo Finance.
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Blackbaud presents a compelling short thesis due to its deteriorating fundamentals, questionable capital allocation, and lack of valuation support. The company’s 2022 acquisition of Everfi was a disaster, with revenue declining 28% since the deal, forcing Blackbaud to dispose of the asset for a nominal amount in 2024. This resulted in the destruction of $750 million in shareholder value, a significant blow for a company with a market cap of roughly $3 billion. CEO Mike Gianoni, who has led the company since 2014, has presided over a stock that has underperformed the S&P 500 by 200% and the Nasdaq by 467%.
While Blackbaud’s 2025 revenue guidance suggests a decline of 3% year-over-year, adjusting for the Everfi disposal indicates a 4.5% organic growth rate. This marks a turning point for the company, with security-related costs from a 2020 cyber incident subsiding, allowing management to focus on its core donation software business. The company transitioned to three-year contracts with annual escalators in 2023, creating an accounting distortion that initially masked growth. However, the first batch of renewals in 2026 will likely show decelerating price increases, posing a headwind. The company initially implemented aggressive price hikes of 16% in year one, followed by 7% in subsequent years, a rate that is unsustainable moving forward. With gross revenue retention in the 92-94% range and net retention below 100%, growth must come from new customers, but macro trends, such as the rise of donor-advised funds, could reduce reliance on Blackbaud’s payment system.
Despite management’s commitment to share buybacks, they appear largely symbolic, merely offsetting dilution rather than creating shareholder value. The company expects to repurchase 3-5% of its outstanding shares in 2025, but guidance indicates that diluted shares will remain between 48.5 million and 49.5 million, making the impact negligible. On a GAAP basis, Blackbaud is expected to generate roughly $1.20 in EPS in 2025, with an optimistic projection of $1.40 by 2027. Given that the stock currently trades at approximately 50 times its 2027 earnings estimate, it remains highly overvalued with no fundamental support. Additionally, the company’s debt burden remains an issue, with an estimated EBIT of $100 million in 2025 against a guided interest expense of $68 million. Since tax law limits interest deductions to 30% of EBIT, Blackbaud cannot fully offset these costs, reinforcing the case for prioritizing debt repayment over buybacks.
One key risk to the short thesis is Clearlake Capital’s 18% stake in Blackbaud and its past attempt to acquire the company for $80 per share in 2024. While the board rejected the offer, a renewed bid remains a possibility. However, given Blackbaud’s worsening fundamentals and declining stock price, it is more likely that Clearlake reduces its stake rather than increases it. If this occurs, the embedded takeout premium could evaporate, removing a key pillar of support for the stock. Chairman Andrew Leitch, in his role since 2009, has overseen a long period of underperformance, making it unlikely that management would accept a lower bid than the one previously rejected. The most probable scenario remains a combination of negative earnings revisions and a major shareholder divestment, further pressuring the stock.
Blackbaud, Inc. (BLKB) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held BLKB at the end of the fourth quarter which was 13 in the previous quarter. While we acknowledge the risk and potential of BLKB as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BLKB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.